The Future of the CRE Market
May 22, 2020
All News

The United States economy is feeling the effects of COVID-19 since all non-essential sectors have been in a near-total shutdown since mid-March. Most states around the country won’t be lifting lockdowns and shelter-in-place orders until at least the end of May. The COVID-19 pandemic has sent the country’s unemployment rate soaring to a record 14.7 percent, a level not seen since the end of the Great Depression.

Over the course of the next few weeks, many retailers will slowly begin to open their doors to customers for the first time since the pandemic began. While this is a good sign, the success of any reopening effort will be determined in part by the average consumer’s willingness and ability to venture out to purchase more than essential items like groceries and gasoline.

Economists do not have an answer as to what the full impact of COVID-19 will be on the U.S. economy. However, most economists do agree that there will be a significant negative effect, both in the U.S. and across the globe. How will all this economic news affect the commercial real estate (CRE) market? Let’s take a look.

Sharp Spike in E-Commerce Sales

Several major retailers have been hit hard by the effects of COVID-19. Those retailers who had yet to adjust to changing consumer habits have had to turn to bankruptcy and outright closure over the past few weeks. Some of the retailers affected most by the pandemic are J.C. Penney, Neiman Marcus, Stage Stores, J.Crew and Pier 1 Imports.

On the other hand, retailers like Kohl’s have seen a spike in digital sales even as their brick-and-mortar stores have been closed for at least two months. Online sales grew to a staggering 60 percent of the brand’s total sales in the month of April, and that trend is expected to continue. Walmart has also seen skyrocketing digital sales, led by strong results for grocery and delivery services. Walmart also benefited from being designated as an “essential business.” Throughout the pandemic, all of the retailer’s U.S. stores remained open.

The Health of the CRE Market

The health of the CRE market going forward will be determined by the approaches retailers take to reopen storefronts and the impact of increased e-commerce adoption rates. Many economists anticipate that consumers will continue to rely heavily on e-commerce transactions. Retailers both large and small that can provide customers with a digital shopping platform will fare better than those with no online presence. While standalone retail assets should bounce back to pre-coronavirus levels once treatment plans are in place for COVID-19, many mall anchors, full-priced apparel retailers and mom-and-pop stores in small strip centers might not be so lucky.

Sales activity in the CRE market has fallen by approximately 17 percent since the pandemic began. Despite this sharp decrease in activity, capitalization rates have remained steady. Rates have fallen by only about seven basis points according to CoStar data. Most investors and landlords are focusing on rent collection and vacancy concerns for the time being, but there is still a demand for high-quality SNTL retail.

Experts in STNL Retail

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several outstanding retail assets on the market right now. Our CVS Pharmacy listing features a NN corporate-guaranteed lease that was recently extended by 20 years. The Tire Choice property that is currently available is situated within a dense retail corridor in The Villages, Florida and boasts a brand-new 20-year NNN lease. Our team is committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. The market changes daily, so please contact one of our brokers for specialized guidance during this time.

Stay Informed

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.

 

We’d love to hear from you.
Have a question or need more information?
Contact Us